"The Deficit Myth" - Summary

This explanation aims to debunk two common misconceptions: the idea that the federal government can run out of money, and the belief that deficits are detrimental. It's important to understand that the federal government, unlike individual households, has the ability to generate money through spending. Taxes, contrary to popular belief, do not fund spending but have other functions. When we talk about deficits, we're referring to situations where the government has spent more than it has taxed. However, this also means that the government has injected financial assets into the economy. Deficits are not a burden that future generations will have to bear. For instance, the debt-to-GDP ratio peaked when the middle class was being built post-World War II. Moreover, deficits do not hinder private investment. The real economic crises we should be focusing on are poverty, deteriorating infrastructure, inequality, stagnant wages, student debt, and climate change.

Moving on, it's worth noting that politicians from all sides often express fear of deficits, which unfortunately limits the implementation of policies that could benefit the public. For example, Obama's stimulus package was smaller than it could have been, as his advisors were concerned about potential backlash over large deficits. A solution to this issue could be the adoption of Modern Monetary Theory, in short MMT. According to MMT, the federal government cannot run out of money, and deficits do not pose a financial burden. The real limit on spending is inflation, not deficits.

MMT offers a fresh perspective, suggesting that we can afford healthcare, education, job programs, and infrastructure. Fiscal responsibility, it argues, should not be defined by deficits, but by managing inflation and investing to meet public needs. The ultimate goal should be widespread prosperity, not merely meeting budget targets. MMT emphasizes that our true constraint is real resources, not financial resources.